Nov. 19 (Bloomberg) -- More than a dozen Chinese developers
gathered for breakfast at a Los Angeles hotel one Sunday earlier
this month before taking off for meetings with property brokers,
attorneys and potential business partners.

The visitors, none of whom have invested in U.S. real
estate development before, would then catch an evening flight to
San Jose, California, and meet with more property executives
there and in nearby San Francisco. In all, they would stop in
six cities over 14 days, including New York and Washington.

“We like the stable and mature investment market in the
U.S. relative to the Chinese market,” Jianrong Qian, chairman
of Shanghai-based Chiway Holding Group Co., said through an
interpreter before heading off to eat with the rest of his group
at the InterContinental hotel in Century City. “We were
encouraged by the pace of the recovery here in the U.S. after
the financial crisis. It shows the resilience of this market.”

Developers from China are committing billions of dollars to
projects around the world, from apartment towers in Brooklyn,
New York, and a new business district in the U.K. to a
residential redevelopment in Sydney and mixed-use buildings in
downtown Los Angeles. Regulatory restrictions at home and
concerns that the Chinese property market is overheating are
spurring companies to venture outside their country for the
first time and look far afield for construction opportunities.

“Chinese companies are getting bigger, so they want to
diversify beyond their home base,” said Goodwin Gaw, co-founder
and chairman of Hong Kong-based Gaw Capital Partners, which is
raising as much as $500 million for its first U.S.-focused fund,
to be used for real estate development and management. “They
feel like it’s their time.”

Relative Stability

Major U.S. cities and parts of Europe and Australia are
appealing to developers for their relative stability and
predictable population growth, as well as their popularity among
wealthy Chinese individual buyers that may be attracted to the
properties. The safety offered is enough of a draw that the
companies are tackling cultural differences and unfamiliar
approval processes, and at times accepting lower returns.

In the U.S., the six biggest metropolitan areas have
attracted $2.88 billion in commercial real estate investment by
Chinese companies this year, up from $321 million in all of
2012, according to New York-based research firm Real Capital
Analytics Inc. The data include both completed and pending
transactions. Manhattan and other New York City boroughs were
the two biggest areas for deals, with Los Angeles third.

Lower Return

The Chinese are adding to a wave of investment in top
markets by buyers including sovereign wealth funds, real estate
investment trusts and private-equity firms. In the six major
U.S. metro areas, commercial-property prices reached a five-year
high in August, the latest month for which figures are
available, and are up 6.2 percent this year, according to
Moody’s Investors Service and Real Capital Analytics.

In exchange for relative safety, Chiway is prepared to
settle for an internal rate of return of about 15 percent on
U.S. projects, less than the 30 percent to 50 percent more
common in China, Qian said in the interview in Los Angeles, the
first stop on the tour organized by the China Real Estate
Chamber of Commerce.

“These types of returns are going to end in China too,”
said Qian, whose company has built about 12 million square
meters (129 million square feet) of mostly residential buildings
in eastern Chinese cities including Shanghai. “They will have
to level out at some point. But it’s hard to predict, and it
makes business-planning for the future difficult in China.”

Atlantic Yards

Greenland Holding Group Co., the Shanghai-based builder of
one of China’s tallest towers, has emerged as one of the largest
Chinese investors in the U.S. In October, the company signed a
memorandum of understanding to buy a 70 percent share of
Brooklyn’s $5 billion Atlantic Yards project. Greenland’s
investment in the 22-acre (8.9-hectare) development, which was
approved in 2006 and has been delayed in part by the recession,
involves 14 apartment buildings and one office property.

“The trend for Chinese companies going abroad has just
started,” Greenland Chairman Zhang Yuliang said in an interview
last month in Shanghai. The company’s projects include four of
the world’s 10 tallest buildings, and it has developments in
more than 80 Chinese cities, according to its website.

Greenland is providing funding for the Atlantic Yards
project while New York-based Forest City Ratner Cos., the site’s
original developer, will manage the day-to-day tasks. Such an
arrangement is common for Chinese developers seeking U.S.
partners to navigate the local building processes and cultural
differences.

More Efficient

The Chinese “realize it’s more efficient to have a local
partner,” Gaw said. “The ones who try to do it on their own
will have the hardest time. It’s not financial but a cultural
problem.”

In San Francisco, China Vanke Co., the nation’s biggest
publicly traded developer, has teamed with New York-based
Tishman Speyer Properties LP to develop the 655-unit Lumina
high-rise towers in the South of Market area. Vanke, based in
Shenzhen, has the majority equity position in the $620 million
complex, while Tishman is the developer and project manager.

The companies have discussed possible sites for a second
high-rise housing project in the city, according to two people
with knowledge of the matter. Tishman is trying to assemble
parking lots into a large parcel for the construction site, and
is negotiating with San Francisco officials because some of the
lots are owned by the city, said one of the people, who asked
not to be identified because the talks are private.

Suzanne Halpin, a spokeswoman for Tishman, and Tim Feng, a
Vanke representative, declined to comment on the negotiations.

Near Arena

In Los Angeles, developer Joseph Moinian is selling a 4.5-acre site designated for a retail, hotel and residential complex
with a potential value of $900 million. The land sits near the
Staples Center, the downtown arena where the Lakers basketball
team plays, and is a few blocks south of a site where Greenland
agreed to buy a $1 billion stake in a six-acre apartment, hotel
and office development.

Moinian said he’s received five “serious” bids, more than
one of which was from Chinese investors.

“Investors see the potential of a development site such as
ours,” said Moinian, chief executive officer of New York-based
Moinian Group. “Chinese tend to have a longer investment
horizon, so this is very attractive to them.”

Offshore investments by Chinese developers are being fueled
in part by the government’s tacit endorsement through a “hands
off” approach, Gaw said. “The fact that the government hasn’t
stepped in and stopped any of these deals is also a message”
that Chinese companies can continue building internationally, he
said.

Relaxed Restrictions

In 2009, China loosened rules governing local companies’
direct investments overseas, broadening the types of funding
allowed and scrapping other rules to help them seize
opportunities with lower investment costs, according to the
State Administration of Foreign Exchange.

“The government hasn’t gone as far as actually giving
incentives to developers like us for investing abroad, but they
have relaxed the restrictions and made it easier,” Qian said.

While limitations on developments abroad have loosened,
curbs at home have been helping drive Chinese developers to seek
opportunities in places such as the U.S.

Rising Prices

China’s government has instated limits on homebuying as a
way of cooling the booming market. In October, new-home prices
in the country’s four biggest cities jumped the most since
January 2011, the National Bureau of Statistics said yesterday.
Prices rose 21 percent from a year earlier in the southern city
of Guangzhou, 20 percent in nearby Shenzhen, 18 percent in
Shanghai and 16 percent in Beijing. Prices climbed in 69 of the
70 cities tracked by the government.

In an attempt to slow the increases, China’s government is
limiting members of one family to owning no more than two homes
in major cities such as Beijing, restricting mortgage-lending
and enforcing 20 percent capital-gains rules on some sales,
according to Omer Ozden, managing partner of the private-equity
unit of Beijing Capital, whose investments include real estate
overseas. The rules have prompted some people to get divorced or
enter “fake” marriages to circumvent the limits, he said.

Even stricter rules are expected at the end of the year,
including guidance from the government on how high builders may
price residential units, Ozden said. Developers and investors
are responding to the restrictions by seeking deals elsewhere.

‘Cooling Demand’

“It is cooling demand and limiting the pace of growth for
Chinese real estate developers,” Ozden said. “Even though the
demand is still there, even though people still want to buy, the
government is imposing restrictions to slow things down.”

Last year, in a separate advisory role, Ozden represented
Beijing-based residential developer Xinyuan Real Estate Co. in
its acquisition of waterfront land in Brooklyn’s Williamsburg
neighborhood for the construction of 216 condominiums.

In cities such as New York, Chinese developers are betting
on rising demand from the increasing number of wealthy Chinese
seeking property outside their own country, including homes for
children studying abroad, according to Ozden and Chiway’s Qian.
Xinyuan’s project, called the Oosten -- the Dutch word for east
-- is scheduled to begin construction by the end of the year,
and is expected to have a “significant” number of pre-sales to
buyers who live in China once marketing begins, Ozden said.

It isn’t as common for U.S. developers to invest in real
estate in China, said Gregory Karns, a Los Angeles-based
attorney at Cox, Castle & Nicholson LLP, who has been advising
Chinese companies for more than two decades.

Prologis Venture

Prologis Inc., the world’s biggest owner of industrial real
estate, on Nov. 11 said it would form a venture to build and buy
properties in the country. The venture, the San Francisco-based
company’s second in China, has an investment capacity of more
than $1 billion, including $588 million of committed equity.

“There are certainly U.S. firms investing in Chinese real
estate, but it’s less so than the Chinese investing here,”
Karns said. “For one, it’s easier to invest in U.S. property
than in China. Essentially, all you need is money. But there is
also a higher level of certainty in the U.S.”

The surge in Chinese real estate development overseas is
reminiscent of the Japanese wave of property investments in the
U.S. and other countries in the 1980s, which included purchases
of New York’s Rockefeller Center and California’s Pebble Beach
golf course. While the push for globalization and
diversification by investors is similar, the timing is quite
different, according to Karns.

‘Better’ Prices

“The Japanese set the top of the market and kept pushing
it higher and higher,” he said. “Just like with the Chinese
today, there was this push to internationalize investments. But
what’s working in the Chinese favor is that the U.S. is coming
out of a real estate recession, so prices are better.”

Japan’s relatively small population and declining economy
at the time of its U.S. real estate expansion ultimately
undermined the overseas investments -- untrue of China and its
investors, said Greenland’s Zhang.

Foreign expansion by Chinese builders shows no signs of
cooling. Vanke plans to increase its overseas investments to 20
percent of development spending from 5 percent today, with a
focus on cities that have been attractive to Chinese for
decades, such as San Francisco, New York and Boston, according
to Chairman Wang Shi.

Outside the U.S., the U.K. and Australia’s largest cities
also are attracting Chinese developers, according to Meisheng
Nie, founder of the China Real Estate Chamber of Commerce, a
5,000-member organization focused on growth in the property
sector. Greenland Holding is seeking projects in Australia and
hopes to invest more than A$1 billion ($952 million) in the
country, mostly in Sydney and Melbourne, in the next two years,
Zhang said on Oct. 29.

Sydney Hotel

The company plans to construct 1,000 apartments on a
Melbourne site and expects to open a five-star, 180-room hotel
in Sydney by 2015, Sherwood Luo, managing director of Greenland
Australia, said last week.

China’s share of foreign direct investment in Australia has
doubled between 2007 and 2012, with transactions in real estate
growing faster than mineral exploration and development,
according to broker Colliers International. Chinese were the
third-biggest group of investors in real estate, accounting for
A$4.2 billion, after the U.S. and Singapore, according to data
from the Australian Foreign Investment Review Board.

In Europe, investments have totaled $3.82 billion this
year, more than triple the amount spent in all of 2012, with
London and Brussels topping the list of targeted cities,
according to Real Capital Analytics.

Manchester District

Beijing Construction Engineering Group Co. last month said
it formed a venture with Manchester Airports Group and other
partners to build an international business district in the
second-biggest U.K. city.

“Markets with a historically strong Chinese influx are
generally very appealing,” Nie said through an interpreter at
the breakfast meeting in Los Angeles. “Our members also prefer
English-speaking places. It makes doing business there easier.”

Many Chinese developers new to the U.S. market will
probably experience “culture shock,” said Karns.

“There is a cultural difference in how the deal is done,
the level of paperwork necessary, attorneys are used
differently, there is less negotiation in China,” he said.
“That boils down to different costs and time frames from the
get-go.”

Deals can break down. Earlier this year, talks between
Miami-based homebuilder Lennar Corp. and Beijing’s China
Development Bank Corp. ended over $1.7 billion in financing for
the Hunters Point project and the nearby Treasure Island in San
Francisco.

Tax Laws

Among the issues was a U.S. tax law requiring foreign banks
to report certain information about their American assets or pay
a levy, two people with knowledge of the matter, who asked not
to be identified because the talks were private, said in April.

China will remain the primary market for domestic
developers in the foreseeable future as it provides the
necessary platform to pursue offshore projects, according to
Greenland’s Zhang. Chiway plans to generate 80 percent to 90
percent of its revenue in China, according to Qian.

“Without a strong business performance at home, you could
never make good overseas investments,” Zhang said.

Still, as long as U.S. cities are expanding, boosting
demand for housing, lodging and retail, Chinese property
investments are likely to continue growing -- especially given
the lack the real estate stability back home.

“In China there has been such an explosion of growth, it
isn’t sustainable,” Qian said. “It is hard to predict when and
how the bubble will burst, but it inevitably will. So we like to
put some of our money into safer markets.”